Mutations in GLI3 manifest in several distinct clinical phenotypes including Greig cephalopolysyndactyly syndrome and Pallister–Hall syndrome (PHS). GLI3 belongs to the GLI family of transcription factors that mediates extracellular Sonic hedgehog (SHH) signals. In the absence of SHH signals, GLI3 is processed to form a transcriptional repressor termed GLI3R. During early limb development, the regulation of GLI3 processing by SHH is decisive in determining the correct number and identity of digits. Analyses of mouse embryos have produced evidence that elevated levels of GLI3R reduce the number of developing digits. Remarkably, PHS causative mutations are predicted to produce a truncated protein similar to the endogenous GLI3R. Nevertheless, polydactyly is frequently observed in PHS patients and it even represents a criterion for the clinical diagnosis of PHS. In order to detect the underlying cause of this obvious discrepancy, we made use of the Gli3^Δ699 mouse mutant, which represents the mouse model of PHS. We show that the mutant murine allele gives rise to a truncated version of GLI3 that mimicks both the processed GLI3R isoform and the proposed pathogenic GLI3 ^PHS protein. We analyzed how the mutant GLI3 protein interferes with the anteroposterior patterning of early limb development, whereas processes that are associated with the outgrowth of the limb bud remain remarkably unimpaired. The presented findings help to understand the previously enigmatic emergence of Pallister–Hall associated polydactyly and thus add to the understanding of the pathogenic mode of the action of GLI3 ^PHS .